The stockholder rights plan, approved unanimously by
Netflix’s board on Nov. 2, would be triggered if an “activist
shareholder” acquired 10 percent of the stock, or an
institutional investor bought 20 percent, Jonathan Friedland, a
company spokesman, said in an interview.

The move is meant to make a hostile takeover too costly.
Icahn, 76, said on Oct. 31 he holds stock and options
representing 5.54 million shares and that the video service is
an attractive target for larger companies, including Amazon.com
Inc. and Verizon Communications Inc., that have entered the
market Netflix pioneered. The poison pill gives Chief Executive
Officer Reed Hastings time to press his international expansion.

“The management team is going to make efforts to avoid
getting taken out before the investment phase is over,” said
Michael J. Olson, a Piper Jaffray Cos. analyst in Minneapolis
who has a neutral rating on the stock. “One of the company’s
biggest fears is not being able to realize the growth potential
and ultimate profitability of the business model.”

Netflix has received no takeover offer and has had no
discussions with Icahn, said a person familiar with the matter
who asked not to be identified because it is private.

Board Role

The shareholders’ rights plan is intended to protect
Netflix and its stockholders from efforts to gain control that
the board deems not in the best interests of the company,
Netflix said in a statement today. It’s not meant to interfere
with any merger approved by the board, Netflix said.

The measure will expire in three years unless Los Gatos,
California-based Netflix votes to extend it.

Netflix gained 1.7 percent to $78.24 at the close in New
York. The shares have whipsawed in the past two years, falling
from a peak closing price of $298.73 in July 2011 to as low as
$53.80 in September. The shares declined 12 percent on Oct. 24,
the day after the company reported subscriber growth that
disappointed investors also weighing its content and
international expansion costs. The stock is up 13 percent this
year.

Netflix is working with investment banks Morgan Stanley and
Goldman Sachs Group Inc., said people with knowledge of the
situation who spoke on condition of anonymity because the matter
is private. The banks are long-term advisers and new ones
haven’t been brought in, the people said. Michael Duvally, a
spokesman for Goldman Sachs, declined to comment, as did Mary
Claire Delaney at Morgan Stanley.

Icahn’s Holdings

Friedland declined to say whether the advisers were
involved in the drafting of the poison pill.

Icahn spent $168.9 million to buy 1.25 million Netflix
shares and 4.29 million options, according to his filing. The
options expire in September 2014. All of Icahn’s holdings except
750,000 shares were purchased in the previous 60 days, according
to the filing.

In a filing today, Icahn called the poison pill “an
example of poor governance.” He also said Netflix has ignored
shareholder wishes that the company “de-stagger its board.”

The investor last year ended a battle for control of Lions
Gate Entertainment Corp. after failing to win board seats, and
bid unsuccessfully for software maker Mentor Graphics Corp. He
said he invested in Netflix because the company is undervalued,
based on its market position and prospects for international
expansion.